In last weeks market wrap, the headline read, "Very little
changed over the past week." My what a difference a week makes
as the bulls took the ball and marched up the field! When I
teach traders and investors about the bullish percent charts and
how to assess risk in the markets and various sectors, I like to
use the football field analogy. Last week the bears had the ball
and had basically achieved a touchdown when the bullish percent
reached the 30% level. When you think of risk/reward, the bears
had basically gotten their reward. This week, the bears kicked
off and the bulls got the ball. Literally, the bulls took the
ball from the 26 yard line (26% bullish percent).on the NASDAQ-
100 bullish percent field, and have marched it to midfield at
51%. The bulls have been here before and have not been able to
break through.
In that market wrap on July 27th, I explained in detail the "bull
alert" condition this indicator can give. Traders got that
reversal last Friday to 38% bullish (chart didn't show as data
had not been processed by editors deadline) and the QQQ had
closed at $41.95. As of last night, the bullish percent reading
for the NASDAQ-100 stood at 51% or right at midfield and the QQQ
closed at $43.18, up 2.9% for the week. This morning, the bulls
looked like they were going to blow it again when the markets
gapped lower, but just like those plays in football where the
quarterback trips when he's coming away from center and it looks
like the play is a total loss, the crowd came to its feet as the
unknown rookie off the bench perhaps saved the day.
Subscribers know this rookie. We introduced you to him Monday
afternoon in the market wrap. That's right! "Dart'n" Disk Drive
Index (DDX.X) is this week's most valuable player. At the time
he was wearing $85, but today he's made the team and wearing $90.
That's about a 5.8% gain in muscle mass and I don't think its
reached its optimum weight yet.
Disk Drive Index - last 10 months
There's only so much room to scribble all that can be said about
a chart. On Monday, we pointed out those three "bottoms" at the
$80 level and it sure looked like the MARKET was willing to buy
and support the group. Now we're in second gear and looking for
MACD to provide the "momentum" signal if it can cross above zero.
I've pointed out two other times on the chart where this index
has acted similar. I will note that MACD position along with the
50-day moving average is more similar to the recent trading found
in April, than that found in January. Why do you think that is?
This is an easy one and will come in handy later this year. In
January, we were just getting done with "tax loss selling." You
know, all those mutual funds that got creamed along with
investors that didn't know about how to use stops. Mutual funds
that were forced to sell positions at profits to meet
redemptions, then had to start selling everything on equal
amounts. By December, most investors were selling more losers to
offset taxable gains. Look at the rally in early January! Not
necessarily due to aggressive buying, but simply lack of selling.
"Everyone" sold in December up to the December deadline. Some
waited until the very early part of January to lock in losses
that they would work off by this year's end. That's what caused
the dramatic surge in January. Oh yeah, the NASDAQ-100 bullish
percent reading was also "oversold" at 22%. Hmmmm... bullish
percent oversold and index near support. Interesting, very
interesting. Maybe investing and trading is all about
risk/reward!
Speaking of risk reward. Did anyone initiate a straddle on
shares of eBay at the open (see 09:00 EST Update)?
eBay Chart - $1 box
Wow! What the heck is eBay (NASDAQ:EBAY) doing trading higher by
4.76% when the NASDAQ Composite finished the day down 1%? Maybe
this is a "key" stock for the NASDAQ after all. Why did the
stock bounce off bullish support like a rifle bullet hitting a
45-degree slab of iron? All I can think of is the old saying
"first test of bullish support is often times a buying
opportunity." Keep an eye on this stock, even if you didn't
trade it today. This morning we knew that a trade at $66 would
have this stock back on a buy signal and contributing positively
to the NASDAQ-100 bullish percent. The stock traded good volume
today of 9.4 million shares. It's a stock that shorts love to
hate and you can bet there's a boatload of shorts in this stock
from $50 to $58. When you look at the above chart you see some
big moves higher when triple tops and spread triple tops are
broken to the upside ($56-$66) and then ($57-$71). One reason
the triple top and spread triple top patterns are so powerful for
upside moves is due to the action of an uncertain short.
As I described this morning, a break below bullish support could
have seen this stock fall quickly to the $55 level. I'm guessing
that's exactly what every short from $60 to $68 was thinking when
they shorted the stock. Today, I'd have to say the bulls had
more upside than they did downside as a bullish trader was
risking about $2 at the open. Just as every bear is looking for
a break of bullish support, every bull in the stock is looking
for a break above that spread-quadruple top at $69. Right now
its a game of chicken and its anybody's guess who is going to
flinch first. All a trader had to do this morning was know his
tollerance for risk, then measure the risk reward in the trade.
But then, that's what good traders and investors do. Oh.... did
you look at ORCL or MSFT charts yet? You can get them for free
at www.stockcharts.com.
Thoughts for next week
Today's action in the second half of trading was encouraging for
bullish thoughts going into next week. Cisco Systems'
(NASDAQ:CSCO) earnings are going to be key. The company hasn't
warned and won't now. What is going to be key is what they say
after earnings are released. It's what they say about the future
that will move the markets.
There was every opportunity at the open for everything to cave
in. If the market was "super bearish" the Semiconductor Index
(SOX.X) should have given back a heck of a lot more than the
measly 2.3% loss today. The SOX.X was up 9% as of Thursday's
close, and the week before the SOX.X had made a turnaround from
the 530 level. Monday's a new day and anything can happen, but I
liked the way stocks hung in there. At least those stocks that
were showing good technicals to begin with held tough. Traders
that continue to try and pick bottoms on stocks hitting 52-week
lows are trying to guess what stocks are all of a sudden going to
come into favor. Sometimes they never do and you can miss an
entire rally as stocks that have been gaining favor gain more
favor as institutions reward those stocks that reward them and
their fund holders.
One group that I though should have really gotten pounded today
didn't. That group is the Biotechnology Index (BTK.X). This
group just looks sold out, but it also looks to lack interest by
the market right now. It's a group I thought for certain might
be the victim of a bear raid, but again, it wasn't. I find
myself asking the question, "if everything is so bearish and this
rally isn't to last, then why aren't bears really leaning on
things?" The BTK.X has been in a four-day downward trend and
you'd have thought for sure that this group would have been
singled out and sold. I call this group my "swing" group as they
could swing the NASDAQ either way. Watch a bullish break above
yesterday's high of 538.03. Bears had an opportune time to pound
the BTK.X into the ground, but didn't. Now it could be the bulls
turn. I'm not looking to trade the group right now. The
technicals are too tough, but that doesn't mean we can't learn
something from how it trades. Risk/reward right now is in favor
of the bears. The fact that they didn't act on that risk reward
has me still leaning bullish on the broader market.
Have a great weekend and get some rest. I think next week is
going to be a wild one and you're going to need to be sharp.
Jeff Bailey
